In cities across the U.S., small and medium-sized businesses play vital roles in their local economies, generating employment opportunities and revenue for the community. Credit unions recognize this and as a result, are focused on attracting and serving more commercial and business members.
However, these members face distinct challenges when it comes to payments fraud. The Association of Certified Fraud Examiners reveals that small to medium-sized businesses lose a median of $200,000 or an estimated five percent of their annual revenues to fraud each year. To make it worse, these fraudulent transactions can easily go undisputed due to regulations that require businesses to report fraudulent activity within two days, compared to the 60 days allotted to consumers, meaning it is unlikely the business owner will recover the stolen funds.
To help business members protect their hard-earned money from online banking and check fraud, credit unions must offer the right treasury management tools and educate members on trending tactics used by fraudsters. Doing so will empower members with greater control and visibility over the funds in their account.
This is more important than ever, as instances of payments fraud are becoming more frequent with 78 percent of companies falling victim to fraud last year, according to the 2018 Association of Financial Professional’s Payments Fraud and Control Survey. Credit unions can begin helping their members combat fraud immediately, simply by driving awareness of the different types of payments fraud. Such initiatives are necessary because approximately one-third of small businesses in the U.S. have not heard of payments fraud threats, like business email compromise and invoice fraud, according to a survey by MasterCard and Vocalink.
Driving Awareness of Prevalent Threats
Business email compromise (BEC) is one tactic credit unions should warn and raise awareness of among their commercial and small business members. This is a growing issue and official FBI figures estimate that more than $5.3 billion has been lost globally due to BEC fraud in the last three years. BEC scams are targeted attacks that are directed toward employees with the ability to perform financial transactions on behalf of their company. Fraudsters will often use information available online and on social media sites to research an individual before sending an email asking the employee to send funds. With this information, fraudsters can pose as vendors or suppliers and reach out to the appropriate employee to request payment.
Credit unions should also make sure members are aware of account takeover scams, where criminals target corporate accounts to access large account balances and automated lines of credit. By gaining access to the account, the fraudster can add recipients to payroll files or change account information for existing recipients and redirect payments to their own account.
Giving Members More Visibility and Control
Educating business members of prevalent threats can help them mitigate the risk of falling victim to these common scams. Still, it is crucial that credit unions find ways to involve their business members in fraud prevention efforts even further, especially as the industry moves toward the widespread adoption of faster payments through options like same-day ACH and The Clearing House’s real-time payments rail.
Conventional treasury management solutions and fraud prevention tools place most of the burden on the credit union, requiring credit union staff to detect fraudulent transactions and communicate the issue to the member. Understandably, these manual reviews and call back procedures are labor-intensive, time-consuming and can negatively impact the member experience.
Instead, credit unions should enact prevention methods that are convenient and effective by enlisting their members’ participation in combatting fraud. Using tools like check and ACH positive pay, biometric technology and communications technology, such as SMS text, credit unions can efficiently monitor the electronic movement of funds, automatically alert the member in the event of a suspicious transaction, and then proceed according to the member’s instructions. This automated anomaly detection and response strategy will enable both the institution and the member to stop fraud before the funds ever leave an account. Empowering members with more visibility and control over their account through layered, interactive security measures like stronger authentication and actionable out-of-band alerts, supports a positive member experience and a more proactive approach to fraud prevention.
With approximately 28 million small businesses in the U.S., credit unions have a massive opportunity to attract more business members and address their financial needs, and protecting the cash flow of these businesses should be a top priority. By taking a strategic approach to fraud prevention and recognizing the efficacy of educating and involving the business member, credit unions and their members can rest assured their finances are secure.
For more information, download our white paper, " FFIEC Guidelines - Layered Security: How Much is Enough?"